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Housing does more than provide physical shelter: It gives people a sense of belonging, a safer living environment and a community to call home.
Without stable housing, financial security is usually out of reach. Without an affordable place to live, accessing job training, higher education, childcare and even medical treatment can be impossible. Yet right now, millions of Americans lack access to a safe and stable supply of affordable housing. In fact, the United States needs a minimum of 7.2 million more affordable housing units (and potentially as many as 12 million units), according to the National Low Income Housing Coalition.
As an investor, developer and operator of affordable housing, I see firsthand every day how creating and sustaining affordable housing can positively impact individuals and families. At Lincoln Avenue Capital, we’re working to do our part. Though our company is only a few years old, we’ve already taken actions to ensure that 9,000 units of affordable housing remain affordable for decades to come. We have also rehabbed thousands of affordable units in just the last three years. And we’re just getting started — our budget for construction and rehabilitation work is projected to triple over the next 12 months.
Our experience has given me insight into how leaders in the public, private and nonprofit sectors can further address this growing challenge. What do we as Americans need to know to understand the current affordable housing crisis?
1. There is not enough affordable housing supply to meet demand.
As striking as it is to hear that the U.S. needs 7.2 million to 12 million more affordable units, the percentage of affordable homes available is even more concerning. Only 35 of every 100 extremely low income families have access to available affordable housing. That number rises only slightly to 55 for very low income families. (Extremely low income is defined as at or below the poverty line or 30% of area median income (AMI), whichever is higher. Very low income is defined as households with income between 31% and 50% of AMI.) These numbers do not include the more than 500,000 Americans who are homeless. This lack of affordable housing supply means that more and more households are putting a high percentage of their income toward rent.
2. We must pay attention to the percentage of Americans who are ‘rent-burdened’ and ‘severely rent-burdened,’ and understand what these terms mean.
Rent-burdened households spend at least 30% of their income on rent, and severely rent-burdened households spend more than half of their income on rent. A 2015 study from Pew Charitable Trusts found that nearly two in five renters are rent-burdened, while nearly one in five are severely rent-burdened — and the share of rent-burdened households continues to rise.
While these terms have technical meanings for our government, they are important indicators that are relevant for all of us. Being able to afford health insurance and medical expenses, car or public transit costs, food, and other basic necessities is incredibly difficult when so much of a household’s paycheck goes toward rent. In these situations, rent truly becomes a burden that prevents households from long-term planning and becoming financially stable.
3. Households can budget better when their rent is stable.
Affordable housing can help people who are living paycheck-to-paycheck build a future for themselves and their families. I’ve met with residents of our properties across the country who have shared how access to affordable housing completely changed their ability to budget. Residents can now pay down high-interest borrowing — debt that is often accumulated from purchasing common household items. I remember sitting down with one family who explained to me how housing assistance enabled them to pay back loans on things like mattresses and kitchen appliances that were accruing at double-digit interest rates. Affordable rent helps tenants avoid taking on high-interest loans for recurring expenses like food, medicine, school supplies and gas, and instead start saving for their long-term goals, like job certifications, higher education or a down payment on a house.
4. Affordable housing isn’t ‘one and done’ — it needs to be maintained.
All buildings need upkeep, and that includes affordable units. Too many forget that affordable units aren’t truly available for tenants unless they are properly maintained. The affordable housing industry has a responsibility to maintain quality standards for all properties and each and every tenant.
Private activity bonds (PABs) are a critical source of financing for affordable housing construction and repair. PABs are not only used for affordable housing, and applications for this financing in each state are subject to a volume cap, set by the IRS. For the first time since before the Great Recession, demand for these bonds is exceeding supply in multiple states. Volume cap issues are forcing developers to delay or reduce capital investment and thus reducing the quality standards within existing affordable housing. The challenges in securing this bond financing are exacerbated by the fact that construction costs continue to grow.
5. Solving this crisis requires long-term commitment and public-private collaboration.
Addressing the affordable housing crises will require the public, private and nonprofit sectors to work together. In California, for example, leaders proposed plans to build 3.5 million new homes by 2025 by offering tax credits and funding for private developers to build affordable housing units. The private sector can bring scale and innovation to this problem.
Affordable housing is an essential component for making the American Dream accessible to all. It is more than simply bridging the divide between the number of units we have and the number of units we need. This is about giving people a place to live in their communities and the stability required to achieve financial independence, often serving as a critical component in breaking poverty cycles. But most importantly, affordable housing is a long-term investment in communities — one with immeasurably high returns.